MS. LUZZATTO: Hello. We have a briefing today from two China
scholars. Each of them will give brief remarks and then take questions
for you. Kenneth Lieberthal, who is on the faculty of the University of
Michigan at the Center for Chinese Studies will go first. I have bios
here for people who are interested afterwards. And Harry Harding, who
is the Dean of the Elliot School of International Affairs and Professor
of Political Science at George Washington University.

DR. LIEBERTHAL: Thank you. I'm going to direct my remarks
broadly to some basic information about China. Harry Harding will then
focus in more directly on what the reforms in China have been and some
of the issues that are currently on the agenda there. And then we'll
both be happy to take whatever questions you've got.

I think if you want to understand China's leadership and how they
approach the relationship with the U.S. and their own domestic issues,
you have to keep some basic dimensions of China clearly in mind. First,
in terms of size, China is the same size as the United States, 2 percent
bigger than we are in land area. But its population is 4.66 times the
population of the United States. They have over 1.2 billion people to
our roughly 265 million.

Beyond that, their population is not evenly distributed. Better
than 90 percent of that population lives in the eastern half of the
country. So you have to picture a United States with about 1.1 billion
people living east of the Mississippi River to get a comparable feel for
population densities.

Even though they have a very rigorous program, as you know,
of birth control in place -- it's been in place for many years --
nevertheless their population still grows, every three years increases
by the entire population of the state of New York, so that they're
adding a little over 12 million people per year, net out, births minus
deaths, every year.

They have to support that population on an arable land base that
is half as large as the U.S. arable land base, and they're losing arable
land at roughly the rate of one percent per year, because the land gets
plowed up in order to build highways, expand cities, and so on and so
forth.

If you look at the Chinese physical environment, because part of
the summit will address itself to environmental issues, you have to keep
in mind several fairly, I think, striking issues. First of all, in
almost every major resource, China has less than the global per capita
average availability of that resource, whether it's forest, grasslands,
water resources -- you name it. And China is in the bottom half of the
countries of the world on a per capita basis in terms of availability
of those resources.

It is fair to say that China now has a greater environmental
crisis than any other country in the history of the human race at a
comparable stage of economic development. There is no substantial
body of water in China that is not polluted. China's air is highly
contaminated. They face environmental problems of absolutely dramatic
consequence. Let me just give you one or two examples.

On the water side, China suffers from a severe water shortage in
addition to tremendous water pollution. The water table in North China
-- how far you have to go down before you hit water -- drops by three
feet per year. It has dropped by three feet per year since 1960. And
so, of China's roughly 540 cities, more than 300 are severely water
short. So the water is a desperately short resource in China.

If you look at air pollution, just give you one number on that.
The World Health Organization says maximum suspended particulate matter
that is compatible with human health is 90 microns per cubic meter of
air. If you look at China as a whole, the average is about 400 microns
per cubic meter of air now. That reflects the fact that their major
source of energy is coal; they don't have other sources of energy that
are nearly adequate to meet China's needs. That coal adds a lot of
pollution to the environment as they burn it, and they rely on it for
76 percent of their energy, and that is not going to change in the near
future.

And then, finally, as the Chinese look around in an era after the
Cold War, they see that they still live in a very tough neighborhood.
Where we have Canada, they have Russia. And if any of you knows what
the future of Russia is, you're in better shape than I am or than any
of the Chinese are. Instead of Mexico, they have Vietnam. Instead of
the Gorges Bank, they have North Korea, South Korea and Japan. And they
don't trust Japan and they are obviously worried about developments on
the Korean Peninsula. Instead of worrying about the salmon run to their
west, they worry about subversion by militant Muslim groups outside of
-- coming out of Afghanistan or from the former Soviet Central Asia.

So we look around at the end of the Cold War and say the world is
doing very well and it's basically an economic game out there. They
look around at the end of the Cold War and say, we still live in a very
difficult neighborhood and we recognize the game is basically economic,
but we've got some security concerns here that are really fairly
substantial.

So the conditions of China, in short, are tough. The constraints
that they face are difficult and the leadership of China as it looks to
the future always thinks in terms of the constraints, of the size of the
population, the limits of the arable land base and security issues in
their environment.

Let me also make a couple of comments about the long sweep of
China's modern history because that deeply affects the way China's
leaders see their tasks and their challenges. The fundamental fact of
the history of the last 150 years of China is that the industrialized
countries, first in the West and then including Japan, use their strong
increment and power based on the Industrial Revolution in a way that
brought China from a great civilization to the sick man of Asia. That
essentially destroyed Chinese imperial system that had lasted four
millennia.

The net result was that from 1912 to 1949, at no time did China
have a national government that even in minimal terms was able to extend
its reach to the entire country. That was ended only with the victory
of the Communist Party in a civil war in 1949. From 1912 to 1989, you
cannot find a decade in China that did not witness large-scale civil
violence by some Chinese against other Chinese over political issues,
so that the entire 20th century, up until this decade for China, has
been characterized by substantial levels of political violence domestically,
regardless of the government in power, regardless of the period of time.

When you take this history and these constraints into accounts, it
seems to me the Chinese have three basic goals. One, obviously national
unity. And the way the Chinese see national unity is overcoming the
dismemberment of the country that was imposed on them by stronger powers
that were more economically developed over the past century and more.

The second goal is economic development because, in part, they
recognize that national strength that brought them low was based on more
rapid economic development in other countries, so they are determined
to develop their economy, they make that their top priority. And it is
both to stand tall among nations and also to improve the standard of
living of their own population.

And, finally, social and political stability. And that goal,
I hope, is vivid to you after this brief review of the amount of
domestic violence and domestic instability that's existed in China
for the better part of this century.

I want to conclude by noting simply two key tensions in China now.
One, in foreign policy. China, for the better part of the better part
of a century has seen itself as a victim in the international arena.
They're the week country dealing with the strong powers, strong powers
that do not pay them adequate mind or respect their rights and their
sovereignty. At the same time, one senses in China now a feeling that
after 20 years of economic reform and growth, that Dean Harding is about
to go over with you, that they're on a roll -- that as they look to the
future they're going to be a major country.

And so they're caught at kind of the intersection of being a
victim on the one hand and a major country on the other. And frankly,
victims preach morality, always play a week hand, always ask for you to
accommodate to them to make up for past wrongs. Major countries have
broad responsibilities, shared responsibilities for how the region and
the world fair. And the Chinese can't quite figure out where they are
on this. Sometimes they act more as victim, more as major country.
Sometimes it brings out the worst of both worlds in their foreign
policy. And so I think you should keep that in mind as you think
about how the summit will unfold.

And then, finally, domestically, the Chinese are developing
extremely rapidly. Their economy has been the fastest growing
industrial economy in the world for nearly two decades. That's
not a blip, that's a long-term, deep-rooted trend. But rapid economic
development does not necessarily produce social and political stability.
It includes massive redistribution of resources, huge migration, very
different distribution of wealth, very different access to information
from before and so forth. Bottom line is, it creates a huge amount of
tension, even as it raises average standards of living. And so,
we're looking at a country that is both hell-bent on rapid economic
development and, at the same time, very worried about the fragility of
the social infrastructure of the country as that development proceeds.

With that as the broad picture, let me turn to Harry Harding to
give you a more detailed update of the last several decades. Thank you.

DR. HARDING: Thank you very much. As Ken has just mentioned,
since 1978, China has embarked on an ambitious and sweeping program of
reform. And it's this reform program that provides the context for the
Jiang Zemin visit and, of course, the foundation for Sino-American
relations more generally.

One of the most important challenges for all of us, whether we're
in government or in the news media or in the academy, is to come to a
comprehensive and objective understanding of what this reform program
in China has accomplished and where it's going. This understanding is
hindered by the very complexity of China's reforms. Except for the most
basic, such as China is a big country with a long history and a huge
population, I can think of virtually no valid generalization about China
that does not have a "but" in it somewhere. And the trajectory in which
China is going as a result of its two-decade-long reform effort is not
entirely clear.

What have the reforms have accomplished so far -- and you'll see
that everything I say will have that "but" in it somewhere. China has
transformed a centrally-planned economy into a more market-oriented
economy. But there is still considerable government fiscal and
administrative intervention in the workings of that economy.

There has been diversification of economic ownership, but still
with a large and inefficient state sector, which is one of the biggest
challenges China faces today, and with much of local rural industry --
the so-called township and village enterprises -- owned and managed by
local government. There have been substantial increases in standards
of living, especially in the coastal cities and the suburban areas of
China, but with growing inequalities and with substantial areas of
poverty.

China has experienced an unprecedented degree of integration into
the international economy, but with continued barriers to imports and to
incoming foreign direct investment. Chinese society is far freer from
ideological and political controls than at any time since 1949, but the
Chinese state still does not tolerate either independent political or
religious organizations, or open challenges to ideological orthodoxy.

The Chinese civil service is far better educated, more likely to
be recruited on meritocratic criteria, but is increasingly corrupt and
its levels of education are still not up to par. The Chinese political
system is characterized by increasing consultation with affected
interests and by the rule of law, but it has few mechanisms for
ensuring its accountability to the public, particularly at higher
levels of governance -- province and center.

And finally, China is undertaking a more accommodative and
responsible foreign policy, but it still has territorial claims on
its neighbors and has embarked on a concerted program of military
modernization.

Now, this balance sheet makes it very inappropriate to portray
China in simple, black or white terms. But this is precisely what we
want to do. We've tended at different times to emphasize one side of
this evolving balance sheet over another. In the 1980s, for example,
many observers were too enthusiastic, in my judgment, about China's
reforms, particularly when they stood in contrast to the minimal change
that was then occurring in the Soviet bloc.

Conversely, after 1989, many observers focused on the other side
of the balance sheet, on the negative, and again, perhaps because China
now seemed to be lagging behind the former Soviet Union and Eastern
Europe. In fact, I think it's fair to say that China has changed far
less dramatically since 1989 than American images of China have changed.

One particular mischaracterization of the situation that I
want to emphasize is to say, as many do, that China has seen economic
restructuring without political reform. As I've just indicated, the
political reforms have, in fact, been substantial. It is true, however,
that political reform has lagged behind economic change, in my judgment,
and that this gap has widened since the Tiananmen crisis of 1989.

The 15th Party Congress that just concluded did seem to place a
higher priority on economic reform than on political reform; indeed,
seemed to be suggesting that the economic reforms would be so painful
that this would not be the time for greater political openness.
Significantly, though, although the 15th Party Congress did not announce
any acceleration of political reform, nor any new initiatives in that
area, nor did it reverse any of the reforms now underway, especially
village-level elections and the rule of law.

Now, what's China's trajectory from here? Again, complexity
has its lesson, and its lesson is to please be beware of straight-line
forecasts about the future. Those who have made such forecasts have
so far been wrong. In the 1980s, many people thought that China would
continue to see smooth and rapid transition toward market democracy.
They were proven wrong at Tiananmen. On the aftermath of Tiananmen,
many people said that China must be, therefore, on the verge of
collapse or geographic fragmentation. They've been wrong. And more
recently we've been told that China is becoming a neo-fascist state
that poses a rising threat to American interests. I think that is
also a straight-line forecast that will be proven to be incorrect.

If I had to make any kind of a forecast, I would say with great
caution that from a broad perspective -- Ken gave you a historical
perspective, I'll give you a comparative perspective -- that China's
trajectory is similar to much of the rest of Asia in modern times.
It's making progress towards a market-oriented economy, deeper
integration into the rest of the world, a freer society, and more
technocratic, legalistic, and consultative political institutions.

Hopefully, like many of its neighbors, China will gradually begin
to add more political reforms to the mix, including a freer press, more
societal pluralism, and more accountable political institutions. But
it is unlikely, at least in my lifetime, that China will resemble the
United States or even South Korea or Taiwan. And we may still feel
uncomfortable about some aspects of what China chooses to do.

And even given that kind of guarded forecast, let me also say that
there are many complicating factors in China that could throw things
off track. The political elite still places significant constraints
on political reform. The emerging middle class in China is more
symbiotically related to the political elite than may have been true in
the West in our history in past centuries. And above all, the daunting
internal problems that Ken Lieberthal has mentioned may derail political
reform.

So, in short, we can hope that China will move in the same
directions as Taiwan, South Korea, and much of Southeast Asia. We
can certainly assist it in doing so. But, unfortunately, there are
no guarantees, as this enormously dynamic, but very complicated
country grapples with some of the most daunting social, economic,
and environmental challenges we've ever seen.

Q Why is he coming here?

DR. HARDING: Why is he coming here?

Q And also, would you call it -- it's sort of like a hybrid now.
It's not really a communist state per se; it's neither-nor, and it's
still trying to find itself.

DR. HARDING: I'll let Ken answer the easy question, which is the
second, about the nature of the hybrid. Let me simply answer the first
one -- why is he coming here? I think that there are two questions. I
think that it is the case that he has his own personal political agenda.
This is a way of ratifying his position as the newly-elected head of the
Chinese Communist Party, presumably the to-be-confirmed-President of the
Chinese state after the 15th Party Congress. Clearly, he would like to
gain political capital from this. That is one reason why many political
leaders travel abroad. There is nothing new about that.

I think also, to borrow a phrase from our former ambassador to
Japan, Mike Mansfield, from the Chinese perspective, there is no more
important relationship than that with the United States, bar none.
China sees the importance of the United States to all of the problems
and all of the objectives that Ken Lieberthal just mentioned.

I think the Chinese do genuinely want a stable, constructive and
cooperative relationship with the United States. The issue that we'll
all be looking for and you, as closely as any of us, will be what Jiang
Zemin is prepared to bring to the table in order to help build that
constructive and cooperative relation.

So I think he comes with both a personal agenda, but also with
a very important national agenda.

DR. LIEBERTHAL: I, frankly, don't envy you, in speaking to your
second question, in trying to convey to the American public what China
is all about, because the problem is the categories we use -- capitalist
versus communist, market economy versus planned economy -- just simply
don't happen to fit what China actually is, as your question so rightly
suggests.

The Chinese economy, for example, has moved very far toward a
market, so it is not a planned economy in any serious sense of the
word, but at the same time, market forces rarely dictate what in fact
has produced the price that's actually charged for and who makes money.
Rather, there is a kind of official interference at almost every level
of their economy, so much so that I would term it a "negotiated" economy
-- essentially, it's negotiations with the government that determine
two-thirds of whether you're going to make profit or not.

So when you talk to the American people and try to explain how
do you talk about the Chinese economy, it's very hard to be realistic.

At the same time, China is a country that absolutely insists in
calling itself Socialist and continues to do a lot of things that have
almost nothing to do with Socialism. When I talked to people in China
a few weeks ago about the aftermath of the 15th Congress, they said,
you know one of the most remarkable things about our briefings in the
aftermath of Congress was, we were all told not to talk about ideology.
I mean, be practical. Do what you've got to do. Think through what
will work, and then you just put an ideological gloss on it, because
you have to use some kinds of terminology.

Perhaps nowhere is that more dramatic than in the decision to
take on the restructuring of what Harry talked about -- their
state-owned enterprise sector which, on the whole, is a huge albatross
for them. They're now moving to convert that as much as possible with
some exceptions, but on the whole, to a shareholding system, so they'll
sell shares in various forms for ownership of state-owned enterprises.
They call that moving from state ownership to public ownership. Still
Socialist. Well, if shareholding is strictly Socialist, then the
biggest Socialist country in the world is the United States.

So you've got a problem of terminology here. If the former
Soviet Union were doing that, we would call it the biggest privatization
in history. And so, there is a problem, I think, for your getting
across to the American people what is really going on there, and the
fundamental problem is, it doesn't fit our categories very neatly.

Q What do you think the Clinton administration should hope
to achieve? What realistic goals could they achieve economically,
politically, militarily, human rights, during the course of this summit?

DR. LIEBERTHAL: Let me give an initial response, and then
ask Harry Harding to supplement it. I think most of the concrete
achievements are, frankly, still in the process of being nailed down,
so I'm not in a good position -- I don't think anyone is at this
point -- to indicate exactly what is going to be achieved. I think
there are two fundamental achievements that one should look for.
One is whether we begin an effective process of communicating to the
Chinese in a way that they both understand and trust, and therefore
building our ability to cooperate with them on issues where we can
cooperate, and listening, a more effective type of engagement with
them, than we have been able to achieve in the past.

There are various things under discussion. I'm sure you're as
well-informed of them as any of us are. But I think the bottom line is,
there is a lot that will be nailed down finally in the coming week, and
so it's really not all that appropriate to try to second-guess that.

The second issue which I think is a very big issue is whether this
summit begins to move the U.S.-China relationship out of what I would
term a "Tiananmen framework." There is one person quoted in The New
York Times on Friday, characterizing the summit as, "Jiang Zemin's
victory lap around the United States after Tiananmen." I think that
sums up the way a lot of Americans still view China, that nothing has
happened since Tiananmen and we should treat China as if Tiananmen had
just occurred. Now, our politics, our China policy are very much tied
into that issue. As long as we do that, we're going to deal with the
gross simplifications and inability to deal with the realities of China
that Harry Harding talked about.

If this summit, with the attendant publicity, Jiang Zemin's trip
around the U.S. and so forth, goes well it may begin to move the
relationship on to a more complex, I would argue more realistic and
long-term, more helpful basis for American interests.

DR. HARDING: Just to add one word, I think framework is very,
very important. Basically, in 1972 when Richard Nixon visited China,
we established a framework for Sino-American relations that lasted down
to 1989. It was modified, it was supplemented, but basically we
understood that we had a very important common interest, and that was
dealing with the ambitions of the -- now, the former Soviet Union.

Since 1989, we've really not had an agreed-upon framework, either
agreed upon within our society, let alone agreed upon with China. And
in that sense, I see this summit -- maybe we should say, this twin
summit, the exchange of summits this year and next -- as potentially
the most important since 1972.

Can we come up with a new framework that will have to deal with a
lot more complexities than the 1972 framework did, which was very simple
-- a common enemy. We don't have such a simple framework today.
Can the leaders come up with something that can substitute for that
framework in providing the basis for a cooperative relationship.

Q To follow up with Professor Lieberthal, as you said, the agenda
is starting to come pretty well into focus and it's pretty clear that
both leaders are going to talk about the advantages of cooperation as
opposed to hostility. Given that, do you see any way the summit could
not be a success? I mean, are there scenarios by which this summit and
the visit would be a failure?

DR. LIEBERTHAL: Yes, to me there are. But to me the two most
important elements of the summit are, first, do the two Presidents get
a better personal feel for each other and so feel comfortable moving
the relationship forward, knowing that the other one will not pull the
rug out from under them. These people have met only briefly. They've
met in kind of brief settings attached to other meetings, such as an
APEC, as kind of side meetings, or U.N. General Assembly. So this
will be the first time for them to really sit down and have a more
detailed face-to-face dialogue. They're both politicians; they're
both very good at judging other people. I think that's one of the big
issues to come out of this. It won't be very visible, but it will be
very important. If that goes badly, then clearly the summit will have
not moved the relationship forward very well.

More importantly in many ways is what I just referenced at the
end of my remarks, which is to say the public perception of China.
Jiang has sketched out a very ambitious trip. It starts with the
wreath-laying in Hawaii, and then he's in Philadelphia, he's in Boston.
He's at all kinds of places with great historical resonance for American
history, American liberty, and American democracy. And he is very
likely to face demonstrations and tough questioning as goes around,
as he should.

If he handles himself well in that, then I think the --and if you
all portray him as having handled himself well, then I think this will
move the relationship forward and the summit will be seen to have been
a great success. If that goes very badly, if there is some incident or
other where he doesn't handle it well and that really gets played up in
a big way, the summit has the potential to move the relationship in the
other direction.

Q Can I just follow up on that last point? Some of us were being
briefed over at the Chinese Embassy, and they said, yes, we understand
the United States has the First Amendment and we fully expect there will
be dissidents -- that's the term that they used -- facing him, but we're
expecting the United States as the host government to create the proper
atmosphere of cordiality. Implicit in that answer it seemed like they
were maybe not fully prepared for the robustness of American political
culture. What's your assessment?

DR. LIEBERTHAL: Well, to my best knowledge, they have been
informed every way we are able to inform them of what they should
expect. But they come from a very different kind of political system
and political culture, and so, inevitably, there may be some slippage
in their understanding. I think more fundamentally than that, as Jiang
tries to figure out how to come across well in America, you all have
to keep in mind, he also, at the same time, has to come across well in
China, where the standards for evaluating his performance, whether he
maintains China's dignity and so forth, can be quite different from the
demands of doing well here. So he's going to be walking a tightrope.
How well he really grasps the dynamics of American society I think is
open to question. He certainly is going to get a lesson in that as he
travels around the United States.

But, Harry, do you want to add anything to this?

DR. HARDING: Yes, I would, because I think that there are two
slightly different questions that one could answer here. One is, could
the summit actually fail -- and I think Ken has given you a very good
answer to that. Let me answer a slightly different question, which is,
could the summit not succeed -- that's a little bit different.

I think it will be key to see whether the summit does more than
simply go smoothly, have agreement on continued process. The issue
will be whether it begins to advance cooperation on specific issues
or advance a common understanding of a framework for the relationship.

As you know, there are many critics around who say that our
so-called "policy of engagement" is simply a policy of dialogue without
conclusion, of dialogue without result. And I think that many people
are willing to give this process a chance, but I do think that we have
to have by the end of the twin summits a sense that concrete issues are
beginning to be moved forward and that we haven't simply agreed to talk
some more. So in that sense, the summit may not dramatically fail, but
in the long run, we could see that it was not as positive a turning
point as we would like it to be.

DR. HARDING: Can I add one more word to that just for one second?
That is, that's why I think that this summit has to produce what I would
term "effective engagement," which is to say you do have to move the
ball forward. But it's also important to understand, for example in
the arms control issue and nonproliferation, that is an issue that I
think will see some progress at this summit -- not going to, by any
means, resolve all questions that we have about Chinese behavior. And
the question is going to be whether people understand that if you move
the Chinese in the right directions, is that a good basis for continuing
and enhancing the relationship, or do you say, but wait a minute, the
Chinese are still 25 yards from the goal line, and you focus on those
25 yards and say what's the sense of all this. So it does require some
framing of issues and putting them in perspective, as they are
summarized for the American public.

Q You helped us with the public perception of China. A little
more on Jiang. I noticed the editorial cartoon in The Washington Post
today portrays him as a murderous dictator. Now, how does he overcome
that, and should he? How should the United States and the American
people regard Jiang?

DR. HARDING: I think that they should see him as someone who has
come to power after Tiananmen, first of all, and one who is presiding
over exactly the kind of complicated system that we've been trying to
describe here. To see him personally as a murderous tyrant, I think, is
a caricature. Just as, in earlier times, we tried to portray the Prime
Minister of China, Zhu Rongji, as China's Gorbachev.

Again, what I said about avoiding caricatures of countries should
also apply to avoiding caricatures of leaders. This is a man -- also,
we have to understand that partly as a result of reform, that Jiang
Zemin or even Deng Xiaoping does not control everything that happens
in China. This is a country where top political leaders are constantly
frustrated at their inability to control. So to make a very caricatured
view of what's happening in China and then say that Jiang Zemin is
personally responsible for all of it is a double caricature.

Q Could I ask you a question that pertains to what's happening
later on today, and that is Jiang is hearing conflicting signals from
the United States. The head of the American Petroleum Institute was
out in Beijing last week urging China not to adopt mandatory emissions
reductions. Obviously, the President is going to urge Jiang to adopt
mandatory emissions reductions. How do you think he's going to receive
this sort of conflicting signal from the political side of the United
States as well as from the economic side that potentially jeopardizes
investment?

DR. HARDING: Well, I hope that this same kind of briefing is
going on in China, because the United States is a complex place, too,
and the Chinese have dealt with us extensively for 20 years and really,
in one way or another, for 25, since the Nixon visit. They should know
by now that we are a genuinely pluralistic society.

That is unavoidable. I think it is more realistic to expect that
the U.S. government, at least the Executive Branch, can speak with a
single voice. I think we've made some progress in that regard. But
even there, Congress is going to have its own views.

The Chinese will be confused by this. In the past, they have
sometimes thought that it was a kind of a deliberate speaking out
of both sides of one's mouth, that it was orchestrated by the
administration. They have a challenge in understanding us as well.
But it's at least important that the Executive Branch speak in a
coordinated and consistent way about our policies toward China.

Q Can I follow up on that? Just in general, I know you don't want
to talk about -- getting back to the summit itself, to the achievements
that you expect at this point, but what tack should President Clinton
take? What tone should he take on the crucial issues like human rights,
Taiwan, arms proliferation, as he meets with the Chinese leader?

DR. HARDING: What I would say is the following: First of all,
I think that the Chinese are looking for a lot of reassurances from the
United States, and reassurances that I think should be fairly easy for
us to give. They would like reassurances that we are not trying to
prevent their modernization, that we are not trying to fragment them
geographically, we're not trying to undermine their political stability.
So I think that both sides have some reassuring to do -- the Chinese as
well as the United States.

Secondly, I think that the President does need to state American
interests very, very clearly in every area of the relationship -- from
human rights, to the economy, to proliferation, to the environment. But
I think it's very important to present the image of the United States as
being both well-intentioned and well-informed about what's happening in
China, even as we make very clear what our interests are.

And thirdly, I hope that we can find some areas of cooperation.
I think part of the post-Tiananmen syndrome that Ken alluded to was
an inability either to see or to articulate the areas where our two
countries actually share common interests. I think that's beginning
to get better, and I think both our administration and the Chinese have
begun to have much more compelling lists of where we agree, where we
can work together, and then move from those general statements to
actual concrete cooperation.

So that's the advice that I would give to the administration.

DR. LIEBERTHAL: I would just add one word of advice, and
that is that as the President spells out American interests in this
relationship, that he do so to the American people as well as to the
Chinese side. I think there is a very limited perception among the
American public and even in parts of the American government about
where our real long-term interests with China lie and what the
requirements are, therefore, to act in our interests.

Q That public perception is the dissonance. Will there be any
concessions on the human rights? Because I think that is the only
thing that will really come through to the American people.

DR. LIEBERTHAL: Well, in a sense, it's a shame that that's
the only thing that will come through if you're correct, because
the relationship is more complicated, China is more complicated, our
interests are more complicated. Having said that, I think it's fair
to say my best knowledge that we have pressed the Chinese as hard as
we can press them to try to get some movement on the dissident issue
and potentially some releases of people we're all familiar with.

But whether that will actually happen, I'm not sure. You can be
sure if it does happen, the Chinese will not package is as being in
response to American pressure, because that, in their political system,
would delegitimize their action. So you would be talking about releases
on the basis of medical requirements, and so humanitarian probably with
an exit visa accompanying the release so that they can get top-quality
medical treatment abroad and not come back.

Q Given that you've said that, that they are not going to
respond to American pressure, what is the evidence to support the
administration's theory that free markets bring with them freer people?
I mean, is there any evidence to support that?

DR. LIEBENTHAL: Two things. First of all, I don't think I said
that the Chinese are not going to respond to American pressure. I said
that they will not acknowledge that they are responding to American
pressure, but may, in fact, do some things that we're asking them to do.

But your broader question is a very important one. I think that
there is a long-term bet that is being placed that if you provide access
to not only freer markets, but to international information, to the
opportunity for people to develop a middle class that we can promote
through access to the international economy, therefore to acquire
property, to get better education, to travel more, and so forth, that
you will see people be more willing to assert their own interests
and understand those interests. They will want a more consultative
political system, if not a full multiparty democracy; that there will
be greater degrees of freedom in China for job choice, for freedom of
expression, for freedom of the style of life that you choose to lead,
for where you're going to live, for a whole array of things that before
the reforms began were totally unfree.

I would argue, frankly, that the evidence to date suggests that
this broad, rough linkage is working, which is to say in each of the
categories that I've mentioned, China is a much better place for the
Chinese citizen today than it was 10 or 15 years ago. I still wouldn't
want to live there and be a citizen there, so I don't want to suggest
that this is a bunch of boy scouts over there, but it is a much better
place. And I think that that is, in many ways, reflective of changes
in the economy, with, as Harry mentioned earlier, necessary accompanying
changes in the distribution of political power -- much more at local
levels, less at the center -- and a more diverse, more dynamic society.

So it pays off. I don't think it necessarily by any means
produces a multiparty democracy, one person, one vote, or the kind of
individualism -- you know, Jeffersonian Democrats that we're familiar
with. But it does, given their background, move them in directions I
think most of us should recognize as being more positive than not.

DR. HARDING: Just to underscore what Ken said, this is a
correlation which I think is supported by historical experience, but
like most correlations there are exceptions, there can be exceptions,
there can be lags, it can take a long time, and the end result may be
different for different societies. But, still, if you wanted to place
a bet, I'd place it. But no bet is a certainty -- unless the ones I
make. And so I'm not sure how much money I'd bet on this. But I think
if you wanted to make a bet, this is the best correlation one can come
up with.

Q Most business decisions in China are based on politics -- for
example, the Boeing contracts. Will that be something that comes up
in the discussion? And do you think that there is a possibility that
we can, in the same way the U.S. tried to delink human rights from MFN,
delink political decisions in China from the business decisions that it
makes?

DR. LIEBERTHAL: Your question raises a fundamental issue, which
is to say, will China restructure its economy and the relationship with
that economy to the international arena in a way that takes political
decisions at least a significant way out of it? I think that's
extremely important for them to do, both for their good and for the
health of their relationships abroad. We have pushed them very hard
in that direction. A lot of this gets focused around the issue of the
terms of potential accession for China to the World Trade Organization.

I personally, frankly, see it as disappointing that that has not
been brought forward enough that we can at this point in this summit
announce that there is agreement on it. Hopefully, by next year, when
President Clinton goes to China, there will be an agreement on it.

But you're right in saying that the Chinese haven't gone nearly
far enough on this. The American government's position I think is
extremely clear on it, which is to say that we want them to adopt the
rules that everyone else abides by, at least loosely, with a timetable
for getting there, and that that's in their interests and our interests.
And they aren't there yet.

Q Let me put the question a little more precisely then.
It seems that whenever there is a little problem with U.S.-Sino
relations, there is a corresponding reaction in the business
arena -- for example contracts to Airbus when they were upset the
U.S. over MFN. Is this a subject that will come up in the discussions,
and do you think, by having a summit here in the U.S. and welcoming
Jiang to the U.S. at this kind of level that some of this will be
separated more?

DR. LIEBERTHAL: I think the issue of China's adherence to
international rules of trade and investment will definitely come up
in the summit. It's part of the agenda. I know it's something that
President Clinton feels quite strongly about and so will be pressed.
I don't know whether there will be significant progress on that issue
because of the summit or at the summit itself.

More broadly, though, let me make just one additional comment.
It has been roughly a decade since there has been a state visit between
the leaders of the United States and China. The speech that President
Clinton is scheduled to give I believe this Friday on China will be the
first speech on China by an American President since 1989. I think that
when one looks at the summit, one should keep in mind that it is just
simply important to have regularized contacts at all levels, including
the highest levels, between two countries as important as China and the
United States are.

So we're all going to benchmark progress on trade, progress on
human rights, progress on nonproliferation and so forth, and properly
so. But there is also a fundamental background element, which is to
say, not to have meetings at this level for more than a decade produces
features that, frankly, I think are worse for the United States and
worse for China than we are if we do have them. So that's part of
what is driving this whole process, I think.

Q Professor Harding, let me just follow up on your sense of slow,
gradual evolution for the betterment of China and ask you whether there
not some really tough limits to how far the current leadership, the
current elite will allow this process to go. We hear a lot of reports
that the worst nightmare for the current leadership is sort of the
Gorbachev model, that they accuse Gorbachev of having thrown away
Communist Party grip on power in the Soviet Union with perestroika,
et cetera. If that is so, doesn't that make for a little bit more of a
sobering thought in terms of for future development of China, that if
they reach another stage, where from the bottom up there is a gurgling
for more participation, greater say-so, more accountability, the very
strong power of the state, again, will be brought to bear and that we
still might be the Tiananmen era?

DR. HARDING: It is possible, and very briefly in passing, I did
mention that the present political elite places very serious limits, as
we saw articulated at the 15th Party Congress on political reform. One
thing we can say with certainty is that the present political elite
won't be with us forever, and that there are emerging generations of
Chinese leaders who may have a much more open-minded and flexible view
of this.

I think that, again, if we look at the historical generalization,
progress in political reform is made when there is an elite that is at
least willing to consider political change, when there is a pressure for
change from key sectors of society, and when the general socioeconomic
context is favorable enough that the tensions produced by this process
of political ferment don't bring the system down.

So it is a very, very touch process. I would say that if I had
to give a sense of China's trajectory, it is like the rest of East
Asia. But the problems are greater. As I indicated, the political
elite of at least this generation remains relatively rigid, and that
I don't see as much pressure from China's emergent middle class for
fundamental reform as some people, I think -- other people may see.

So I share your caution, but still I think that the overall
trajectory is in this direction of more openness and significant
political change.

Q I have a couple of questions. The first one is, how would you
rate China's fundamental willingness to integrate its economy into the
global economy on terms that are acceptable to other people? Because
we have an impasse apparently over WTO.

And my second question was on political and economic reform.
You said several times that China is following a path laid out by other
Southeast Asian countries. One of the lessons we've learned over the
last few months is that when political reforms lag significantly behind
economic reforms, we have turmoil. Do you see that in China's future?

DR. LIEBERTHAL: I'm sorry, would you repeat your first question?

Q WTO. Is China fundamentally willing to play by the rules?

DR. LIEBERTHAL: One of the problems you have in convincing China
to play by the rules -- both trade and direct investment rules -- is
that they have been so successful not playing by the rules. They,
last year, attracted $42 billion U.S. dollars and paid in foreign
direct investment -- second only to the United States. The year before,
$37 billion -- again, second only to the United States. It's very hard
to make the argument to them effectively, therefore, that if you don't
play by the rules people aren't going to invest here.

Same with trade. Trade has grown almost every single year as
a percentage of their GDP, so that, by now, their foreign trade is a
larger percentage of their GDP -- is the case for the United States,
for example. And so it's, again, very hard to make the case to them
that if you don't play by the rules you aren't going to be able to
have the access you need for exports and so forth.

The United States is the only significant economic trading country
in the world that even contemplates denying China MFN. Every other
country is giving it to them on a permanent basis. So you have to make
almost a philosophical argument to them about why they should undertake
a lot of additional measures that they see as potentially threatening
key domestic interests -- especially in areas like agriculture; we want
them to open their markets to U.S. wheat and other agricultural products
at world prices. That translates into China into unemployment in the
agricultural sector, at the same time that they are about to generate
the largest scale unemployment in their urban areas from restructuring
their state-owned enterprises.

Services, always been grossly underdeveloped in China. You open
up the Chinese insurance industry without restrictions and there won't
be a Chinese insurance company left three years from now. AIG and
others will just eat them alive. That's true in a wide array of
sectors. So what they're trying to figure out is how fast can we move
without causing domestic instability and, by the way, what do we get out
of it. Over the long run are we better off with them than we would have
been otherwise. So I think it's a tough haul to get them to move
farther than they have.

Having said that, let me make just one final comment, which is
if you take any five-year period, there are always ups and downs in any
country, but if you take any five-year period, you'll find that at the
end of that period -- from 1979 to the present, at the end of that
period the Chinese economy is more open in ways that are meaningful to
foreign business people than it was at the beginning of that period;
that the regulations are somewhat clearer, that they are generally more
friendly -- user-friendly, if you will -- for foreign investment and
for foreign trade. There are more people there who understand how the
international system works and will work kind of more in conformity
with it.

So they have a long way to go, but the elephant, at least, is
gradually meandering in the right direction.

Q My second question was about political reform, the pace of
political reform as opposed to economic reform. When political reform
in a society -- I mean, very fundamental political reform, lags, you
wind up with a economic turmoil. In Malaysia's case we've had some
very sharp words towards the West. What would China's reaction be,
would it turn its anger outward?

DR. LIEVENTHAL: If there is large scale unrest in China,
would China turn its anger outward?

Q One, could you predict that because of political reform was
lagging -- economic reform, that we will have turmoil? Two, what
would be the reaction?

DR. LIEVENTHAL: I think actually the chances of turmoil in
China over the next three to four years are higher than they have been
at almost any time since 1989, certainly. The reason for that is, to
my mind, not the lagging in political reform. It is, rather, that they
are now about to undertake massive changes in the way their economic
system functions, including, I think, generating substantial urban
unemployment among the group of Chinese workers who consider themselves
the most entitled people in the world -- workers in state-owned
enterprises who formerly had cradle-to-grave kinds of services and
job security.

They are trying to do a lot of things, do it quickly in the
economy, step up to the plate, if you will, on issues that they have
avoided in the past, and those will generate huge social tensions.
And with those huge social tensions, it is feasible that you'll get
large-scale unrest. You certainly will get increasing unrest, labor
unrest and so forth, as compared with the past. How that is handled
will determine whether it really mushrooms or not.

My own sense is, if you really get an explosion in China, China
doesn't have to get angry at the West -- the West will get so angry at
China that, effectively, they will be back into an antagonistic
relationship with the rest of us.

DR. HARDING: I think that the question about Southeast Asia is
very interesting, and I think it suggests two very important lessons for
China. One is, as you suggested, that political and economic reform do
have to go, to some degree, hand in hand. Ken has just pointed out that
at this particular time, the Chinese judgment is that they need to push
economic reform forward and this is not the time for political reform.
We can debate that, but I think over the long run, they have to go hand
in hand, and, secondly, that both of these are never-ending processes.

I think that one problem with many Asian economies is they got
stuck at a certain stage and, unable or unwilling to continue to do
the tough work of continued competition and continued efficiency,
they began to prop up their old system by all kinds of easy credit.

We do see that same problem in China. The details are different.
It is less likely to be triggered, a crisis, by the withdrawal of
external capital. But the process is very similar. They have a
state-owned enterprise system that they're reluctant to reform for
understandable reasons. They're propping it up by continued infusions
of various kinds of money, from the banking system especially, but also
to a degree from the government. And they need to continue the process
of economic reform and increasingly supplement it with political reform,
in my judgment.

Q You mentioned the importance of President Clinton making the
case to the American public. Do you think he should have given this
Friday speech earlier? Perhaps if he did, the policy would be less
prone to be buffeted by criticism from both the left and the right
here in the United States.

DR. LIEBERTHAL: Let me say, I can appreciate politically why he
would not be terribly anxious every Wednesday to stand up and give a
China speech over the last few years. Having said that, my own view is
that I would have been much happier had he done so much earlier, and in
very forceful terms, and then had the whole administration work to get
that message out to the American people. But be that as it may, at
least he will this Friday.